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RETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL 

SERVICE. 


July 15, 1919.—Committed to the Committee of the Whole House on the state of the 
Union and ordered to be printed. 


Mr. Lehlbach, from the Committee on Reform in the Civil Service, 
submitted the following 

REPOET. 

[To accompany H. It. 3149.] 

The Committee on Reform in the Civil Service, to which was 
referred H. R. 3149, reports the same to the House with an amend¬ 
ment, with the recommendation that the amendment be agreed to 
and the bill as amended be passed. 

The amendment is as follows: Amend, on page 2, line 3, by inserting 
after the word “include ’ 7 “ American employees of the Panama Canal 
above the grade of laborer, superintendents of United States national 
cemeteries.” 

The purpose of this proposed legislation is to abolish the inequitable, 
cumbersome, and expensive system of pensioning employees that now 
obtains in the administrative departments of the Government and 
establish in its stead a uniform, scientific, and economic system for 
the retirement of superannuated employees on annuities based on age 
and length of service. 

The existing pension system consists simply of retaining on the pay 
roll employees of long years of service who by reason of advanced age 
and its attendant infirmities are no longer efficient or competent. 
This practice prevails in all of the departments, notwithstanding a 
lack of candor in some instances officially to admit it. There is no 
warrant in law for the practice, and although by its long continuance 
and universal application it has the force of custom, it is unfair to 
force upon chiefs the responsibility for such a course which both im¬ 
pairs the efficiency and increases the expense of their divisions or 
bureaus. The service pays full salaries for little work or work so 
inefficient that the time of another employee is consumed in checking 
up and correcting it. Competent employees on the same piece of 
work are retarded by the incompetent. On the other hand, the bene¬ 
ficiary of the informal pension lives in constant dread because of the 
uncertainty of his tenure, and in consequence is even more inefficient. 





2 RETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 


A specific example, which the committee has no reason to believe 
is exceptional, will serve to illumine present-day conditions in the 
departments. The subjoined is from the testimony of the Deputy 
Commissioner of Pensions: 

I have found, on making a personal investigation, that approximately 150 of the 
870 employees in our bureau would probably take advantage of a retirement law. 
I can say this, without any reflection upon that 150, nearly all of whom are employed 
in some manner, that we could dispense with their services at this time and not 
lose in appreciable degree any measure of efficiency in the bureau. It is not to us 
a helpful service so far as the administration of pension matters goes. I would say 
further that at least 50 of that 150 are inefficient and do not render any useful service 
whatever to us. They could be retired. In order that you may understand just 
what I mean by what I have said with reference to the number who might retire 
or be retired under this law, I would say that the 150, whose services could be dis¬ 
pensed with, 50 efficient clerks would render us a better service and a more useful 
service than those 150 clerks. If those 150 clerks were to take advantage of the 
provisions of this bill, the annuity paid to them would approixmate $90,000. The 
amount of salary paid to them is approximately $190,000. If their services were not 
replaced at all with new appointees in this bureau, there would be an outright saving 
in salaries of $100,000. 

The existence of this illicit pension system is known to and acqui¬ 
esced in not only by the heads of the departments but by the Con¬ 
gress. At least no serious endeavor to wipe it out has been made 
within memory. This fact constitutes an admission of the justice of 
the claim that the employee who has devoted the better part of his 
life to the service is entitled to consideration in his old age. In 
industry this is to a large degree an accepted principle. Even those 
who would deny its validity practice it in their personal relations. 
It would never occur to them to dismiss from their households with¬ 
out provision a servant who had been in their employ for a genera¬ 
tion. Aside from every other consideration, there is an increment 
of value in the continuity of service by a faithful employee over a 
long span of years, which does not exist in the services of a series of 
employees who come and go during tlmsame period and who draw the 
same pay. For this value the employee is entitled to compensation 
in the form of an annuity. 

PROVISIONS OF THE BILL. 

It includes all employees in the classified civil service of the United 
States, and certain other classes of employees who are not technically 
within the classified service, but whose character of work and tenure 
is substantially the same. It also includes the employees of the 
municipal government of the District of Columbia appointed directly 
by the commissioners, excluding, however, school-teachers, police¬ 
men, and firemen. The retirement age is fixed at 65 years except for 
mechanics, city and rural letter carriers, and post-office clerks, for 
whom the age is fixed at 62 years, and railway postal clerks at 60 
years. A minimum of 15 years of service is necessary to come within 
the provisions of this act. 

Upon arriving at the retirement age, an employee may apply for 
retention in active service, and with the acquiescence of his chief, 
may continue for a two-year period, at the conclusion of which his 
retention may be renewed for a further period of two years, and so on, 
provided that after the act has been in force for 10 years the exten¬ 
sion periods shall not exceed two in number. 


RETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 3 


The annuities provided are shown in the following table: 




Sample table of annuities. 


Average annual salary. 

Class A, 

30 years or 
more, 60 
per cent. 

Class B, 

27 to 30 
years. 54 
per cent. 

Class C, 

24 to 27 
years, 48 
per cent. 

Class P, 

21 to 24 
years, 42 
per cent. 

Class E, 

18 to 21 
years, 36 
per cent. 

Class F, 

15 to 18 
•years, 30 
per cent. 

$1,200 or more. 

$720 

$648 

$576 

$504 

$432 

$360 

$1,100. 

660 

594 

528 

462 

396 

330 

$1,000. 

600 

540 

480 

420 

360 

300 

$900. 

540 

486 

432 

378 

324 

270 

$800. 

480 

432 

384 

336 

288 

240 

$700. 

420 

378 

336 

294 

252 

210 

$600 or less. 

360 

324 

288 

252 

216 

180 


The administration of the retirement system is placed under the 
Commissioner of Pensions, and the Secretary of the Treasury is 
charged with the custody and investment of the retirement fund. 
The records of the service of the employees are kept by the United 
States Civil Service Commission. 

All employees contribute 2 \ per cent of their salaries, which sum 
is deducted monthly from their pay and deposited in the retirement 
fund. In the event any employee leaves the service, or dies, before 
receiving an annuity hereunder, or if such annuity payments do not 
equal the sum total of his contributions together with interest, there 
shall be returned to him or his personal representatives the sum thus 
remaining unpaid together with 4 per cent interest compounded 
annually. 

An employee, having served for a period of not less than 15 years, 
who becomes totally disabled by reason of disease or injury not due 
to his own fault shall be retired under the provisions of this act. 
Such disability must be established by medical examination, recurring 
annually, and upon recovery of the annuitant the payments cease. 

The annuities are not assignable nor subject to civil process. 

For administrative expenses the sum of $100,000 is authorized. 


DUAL CONTRIBUTORY PLAN. 


There are three plans for the maintenance of a retirement fund: 
First, the cost thereof to be borne entirely by the Government; 
second, the cost to be borne entirely by the employees; third, both 
the Government and the employees to contribute to the fund. 

Wherever retirement wholly supported by the Government has 
existed, the tendency has been irresistible to meet demands for 
increase in wages with the suggestion that the prospective annuity 
was in effect a deferred payment of wages. Such a pension plan was 
adopted in 1859 by the British Government with the eventual 
result that those classes of employees coming within the scope of 
its provisions received from 18 to 25 per cent less wages than other 
Government employees not embraced in the pension plan who were 
doing similar character of work. Furthermore, under a straight 
pension system only those who remain long enough in the service 
to receive pensions benefit, who number about one in seven of all 
persons in the service, while the other six lose the contributions to 
the fund which they have indirectly made by the curtailment of 
their earnings. 


















4 RETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 


The second plan has found some supporters among those who deal 
with practical subjects simply as theories. They argue that in as 
much as the employees are the sole beneficiaries they should be the 
sole contributors. These people overlook the fact that the Govern¬ 
ment is also a beneficiary, not only in an increased efficiency in service, 
which has real value in dollars and cents, but also in the actual 
saving of money by the abolition of the unofficial pension system 
now in vogue, as outlined above. But the insuperable objection to 
this plan is the fact that under existing scale of pay and existing 
living conditions it is a financial impossibility for the employees alone 
to finance a retirement fund. Consequently insistence upon this plan 
is in effect opposition to any retirement system at all. 

The third plan, under which the employees and the Government 
both contribute to the retirement fund, is the plan embodied in the 
provisions of this bill. The 2 \ per cent which the employees con¬ 
tribute from their basic pay is not a burden too great to be borne. 
It gives them a vested interest in the fund and a right to be heard 
upon matters of its administration. It insures to those who do not 
eventually enjoy annuities a return of their contributions with com¬ 
pound interest, thus providing an automatic method of accumulating 
moderate savings, together with safeguarding and increasing them to 
a degree which the employees as individuals would be unable to 
achieve. 

COST. 


It is impossible, by reason of constant turnover in the personnel, 
changes in the numerical forces in various departments due to war 
activities, and the prospective return to a peace basis, and other 
causes, to base estimates of the cost of the proposed retirement 
system on absolutely accurate data. In connection with the various 
plans proposed from time to time in the past 20 years numerous 
tabulations have been made and cost estimates worfied out. These 
are available, but because of changed conditions are no longer reliable. 
The subjoined estimate was prepared after careful scrutiny of all 
available data by Mr. John S. Beach, of the Pension Bureau. 


Estimate of cost of retirement under the provisions of the Lehlbach bill (H. R. 3149)» 
"assuming there are 300,000 employees in the classified civil service and that 6,400 
will retire at once, 1,000 will retire each year during the next five years, and 500 
each year during the next four years. Contributions are figured at the rate of 2^ per 
cent on the average annual salary of $1,138. Refunds are estimated on average 
contributions. 

First year: 

Contributions from 300,000 employees. $8, 535, 000 

Annuities for 6,400 annuitants, at $610 each.$3, 904, 000 

Refunds to 20,000 employees separated from the service. 274,500 

- 4,178, 500 


Surplus. 4, 356, 500 


Second year: 

Available surplus. 4, 356, 500 

Contributions. 8,535,000 


Total. 12, 891, 500 

Annuities from 7,400 annuitants, at $610 each.$4, 514, 000 

Refunds to 20,000 employees separated from the service. 549,000 

- 5,063, 000 


Surplus. 7,828,500 


















RETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE. 5 


Third year: 

Available surplus. $7,828, 500. 

Contributions. 8,535,000 


Total.. 16,363,500 

Annuities for 8,400 annuitants, at $610 each.$5,124,000 

Refunds to 20,000 employees separated from the service. 823,500 

- 5, 947,500 


Surplus. 10,416,000 


Fourth year: 

Available surplus. 10,416,000 

Contributions. 8,535,000 


Total. 18,951,000 

Annuities for 9,400 annuitants, at $610 each.$5, 734,000 

Refunds to 20,000 employees separated from the service- 1, 098,000 

- 6, 832,000 


Surplus. 12,119,000 


Fifth year: 

Available surplus. 12,119, 000 

Contributions. 8,535,000 


Total. 20,654,000 

Annuities for 10,400 annuitants, at $610 each.$6,344,000 

Refunds to 20,000 employees separated from the service. 1,372,500 


Surplus. 12,937,500 


Sixth year: 

Available surplus.. * . 12, 937, 500 

Contributions. 8,535, 000 


Total. 21,472,500 

Annuities for 11,400 annuitants, at $620 each.$7,068, 000 

Refunds to 20,000 employees separated from the service. 1, 647,000 


Surplus. 12,757, 500 


Seventh year: 

Available surplus. 12,757,500 

Contributions. 8,535, 000 


Total. 21,292,500 

Annuities for 11,900 annuitants, at $620 each. 7,378,000 

Refunds to 20,000 employees separated from the service. 1,921,500 


Surplus. 11,993,000 


Eighth year: 

Available surplus. 11,993,000 

Contributions. 8,535,000 


Total. 20,528,000 

Annuities for 12,400 annuitants, at $620 each. 7, 688,000 

Refunds to 20,000 employees separated from the service. 2,196,000 

- 9,884,000 


Surplus. 10,644,000 






























































6 RETIREMENT OF EMPLOYEES IN THE CLASSIFIED CIVIL SERVICE, 


Ninth year: 

Available surplus. $10, 644, 000' 

Contributions. 8, 535, 000' 


Total. 19,179,000- 

Annuities for 12,900 annuitants, at $620 each. 7,998, 000 

Refunds to 20,000 employees separated from the service. 2,470, 500 

- 10,468, 500* 


Surplus. 8,710, 500 


Tenth year: 

Available surplus. 8,710, 500 

Contributions. 8, 535,000 


Total.. 17,245,500 

Annuities for 13,400 annuitants, at $620 each. 8, 308, 000 

Refunds to 20,000 employees separated from the service. 2,745,000 

- 11,053,500 


Surplus. 6,192, 500 


Estimated average annuity for the first year... $610 


Estimated number of employees in the preferential classes between 60 

and 65 years of age. 3, 600 

Estimated number of employees in all classes over 65 years of age. 9, 200 

Total eligible for retirement.. 12, 800 

Estimated number to retire at once. 6, 400 

Estimated number of annuitants at the end of 10 years. 13, 400 

Estimated maximum number of annuitants on a basis of 300,000 in service 26, 000' 

Aggregate annuities for 26,000 annuitants at $660 each. $17,160, 000 

Refunds to 20,000 employees separated from the service annually, as¬ 
suming they have contributed on the average for 10 years. $5,490, 000 

Total disbursements annually.*..$22, 650, 000 

Total contributions from 300,000 employees receiving on an average 

$1,138 annually at 2 \ per cent. $8, 535, 000 

Employees’ contribution.per cent.. 37. 7 

Government’s contribution.do_ 62. 3 

o 


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